How to Have “The Talk” with Your Aging Parents

Remember having “the talk” with your parents in middle school?  That awkward conversation you had with your mom or dad where they tried to explain the facts of life to you while you desperately searched for an excuse to end the conversation?  Well get ready to have another “talk” with your parents, only this time, you’ll be discussing their end-of-life planning, not the birds and the bees.

What does this “talk” need to cover?  Generally, this conversation needs to address the issues surrounding your parents’ twilight years, such as retirement planning, nursing home preferences, funeral arrangements, wills and trusts, powers of attorney, and possible Medicaid planning. Specifically, an estate planning and elder law attorney can identify your parents’ unique estate planning and elder law planning issues and assist with implementing their end-of-life planning strategies.  To have a successful “talk” with your parents, consider using this four-part strategy:

Don’t wait for tragedy to strike

Don’t wait for tragedy to strike before having the conversation.  I often see that families put off talking about these issues until an unexpected illness or death shocks the family, at which time it may be too late to do anything.

Have the conversation with your parents right away, while they are still healthy and able to make informed decisions for themselves.  This becomes even more important if your parents are older or if you think a parent is showing signs of memory problems or is not feeling well on a regular basis. Having these discussions in advance can mitigate problems down the road and can remove any feelings of doubt you may have if you need to make a decision on their behalf.

Such topics are sensitive and your parents may try to avoid having the conversation with you altogether.  Schedule a specific time and place with your parents to have this conversation so that they can be prepared for it.  If you unexpectedly spring the discussion on them, they may get defensive or shut down.  If your family will be in town for the holidays, Thanksgiving and Christmas can be ideal times to schedule the family meeting.  You might also consider getting your parents’ attorney and CPA involved in the meeting.

Make estate planning documents a priority

Not every family needs a complicated trust or an aggressive Medicaid planning strategy.  Your parents’ estate planning attorney can assess your parents’ unique situation and make a recommendation for what they might need.  If your parents feel overwhelmed and choose to do nothing, you need to at least advocate that they implement or update their Last Wills and Testaments, Financial Powers of Attorney, and Health Care Powers of Attorney and Living Wills.  These are the basic estate planning documents that every person needs in place, and having them will make everyone’s lives much easier.  If your parents don’t have an attorney or are unable to leave their home, help them find an estate planning and elder law attorney who is willing to come to their home and will handle their situation in the safety of their home.

Address finances carefully

Many in your parents’ generation are cautious and secretive about their finances.  Don’t assume that your parents will be comfortable sharing details of their wealth or debts with you.  If they aren’t comfortable with sharing this information, don’t be pushy.  Simply find out the names of their financial advisor, attorney, and CPA so you know who to contact in case of a financial emergency and encourage your parents to do elder law, financial, and estate planning with them.

Don’t be overly persuasive

Remember that this conversation is about planning for what is best for your parents in their twilight years, not maximizing your inheritance.  You may need to walk a fine line between arguing a position you feel is right for them and not coming off as being greedy.  You don’t want to ruin your relationship with your parents because they think you’re more concerned about their money than what they want to do regarding their nursing home needs in the future.  I recommend that you discuss what nursing home they would want to go to if the need arose unexpectedly and suddenly (i.e. rehab following a stroke or a fall).

Also remember that your parents will be feeling vulnerable, so if you disagree with something they feel strongly about, respectfully present your arguments and recommend that they speak with their attorney and CPA for professional advice.

Much like in middle school, having “the talk” with your parents will be uncomfortable for everyone involved.  However, having open, respectful, and honest dialogue with your parents will give them peace of mind that you are looking out for their best interests.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning matters.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online or print contact.)

New POA Law Highlights the Need for Estate Planning Review

Financial elder abuse, although often overlooked, is a serious problem in our world today.  As baby boomers age and the average life expectancy rises, the number of elder abuse cases will continue to increase.  More often than not, the abuser in these types of cases is someone in a trusted role – a caretaker, a child, or even an agent appointed in a financial Power of Attorney.  While most agents acting under a Power of Attorney are honest, some have abused their power.  To prevent and punish this kind of misconduct, the Ohio legislature passed the Uniform Power of Attorney Act (UPOAA) in 2012.

The UPOAA says that unless certain “hot powers” are specifically granted in a Power of Attorney document, an agent cannot do the following: (1) create a trust or make changes to an existing trust; (2) make gifts; (3) create or change rights of survivorship for certain assets; (4) change beneficiary designations; (5) allow others to serve as the agent; or (6) waive rights to be a beneficiary under certain annuities and retirement plans.

If these “hot powers” identified above are blindly granted to the agent in a Power of Attorney, he or she has almost unlimited power to deplete assets or change an estate plan.  One could argue that everyone should just leave these “hot powers” out of their Power of Attorney to prevent that from happening.

However, there are certain situations where it might be necessary for someone to grant these powers to his or her agent, and he or she may not realize it unless they consult with an estate planning attorney. For example, effective August 2016, Ohio Medicaid law now requires that a Medicaid recipient living in a nursing home set up a trust if the recipient’s monthly income exceeds a certain limit.  Let’s say a Medicaid recipient has dementia and is she determined to be incapacitated.  In the recipient’s Power of Attorney, the agent is not granted the specific power to set up trusts on the recipient’s behalf.  Since the recipient herself lacks the capacity to set up trusts, she could become ineligible for Medicaid assistance and even evicted from the nursing home!

Furthermore, if an elderly person or couple wants to protect their nest egg from the nursing home, they may want to grant their agent the “hot power” to make gifts to family members in their Power of Attorney documents.  That way, their agent can implement advanced Medicaid planning strategies on their behalf if the elderly person or couple becomes incapacitated. Advanced Medicaid planning typically requires making gifts to an irrevocable trust or to loved ones directly to protect assets from being depleted.  These gifts must be made at least five years before applying for Medicaid or the applicant will be ruled ineligible for benefits for an extended period of time.  Last minute Medicaid planning may require the agent to make gifts and purchase an annuity to pay for nursing home expenses during a period of Medicaid ineligibility.

If you already have a financial Power of Attorney in place, contact your estate planning attorney to find out what updates, if any, need to be made to your estate plan as a result of these recent law changes. If you don’t already have a financial Power of Attorney in place, contact an estate planning attorney right away.  He or she can review your unique situation and determine which “hot powers” should be included in your Power of Attorney document. Your estate planning attorney can also counsel you through the important decision of selecting your trusted agent or co-agents.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning matters.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online or print contact.)

Releasing Tax Liens on Business Assets-Case Study

If your business has IRS and/or Ohio state tax liens, your tax problems will not just go away on their own.  The IRS and state of Ohio will eventually seize your assets or force you to declare bankruptcy – causing mayhem for you, your business, and your family.  However, if you find yourself deep in a hole with tax liens, there are different settlement strategies you might be able to implement to release these liens without completely paying them off.  These strategies may require you to sell most or all of your business assets, but you’ll ultimately save the time, money, hassle, and embarrassment of going through bankruptcy proceedings or having your assets seized.

Recently, my law firm helped a client sell his business assets which had almost $1 million of IRS and Ohio tax liens on his business’ assets.  Our client needed to get these liens released before he could close his business and sell all of its assets to a prospective buyer for under $100,000 which was the appraised valued of the assets.  However, the sale proceeds would not completely satisfy the liens and the buyer would not purchase the assets subject to the liens.  Using my 30 years of unique experience as an attorney and CPA, my law firm was able to negotiate with the various government agencies to release their liens in exchange for the share of the sales proceeds that they would each receive if the business were to go through bankruptcy.  The Ohio Department of Taxation was not willing to release its liens relating to Ohio sales tax and Ohio withholding tax liabilities, but it was willing to sign a forbearance agreement that protected the buyer from lien enforcement.  After we closed on the sale of the business assets, all the parties involved in the transaction were pleased with the outcome. The IRS and State of Ohio received what they would have taken in bankruptcy, my client avoided bankruptcy and asset seizure, and the buyer bought the assets clear of any lien issues.

If your business has serious tax lien problems, don’t bury your head in the sand.  Waiting to take care of your tax problems will only make matters worse.  There is no guarantee that the IRS or State of Ohio will release its liens, but your attorney and CPA can advise you on the best strategy to handle your unique tax lien problems.  Contact your attorney and CPA to find creative solutions to resolve your IRS and Ohio tax liens.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Ohio Medicaid Rules Have Changed! Income Trusts-Medicaid Eligibility

Ohio Medicaid Rules Have Changed!  Do You Need a Qualified Income Trust for Medicaid Eligibility?

Do you or a loved one live in Ohio and receive Medicaid benefits for long-term care? Do you foresee yourself or a loved one needing long-term care in the future? If so, the Ohio Department of Medicaid made changes to its eligibility requirements in 2016 that may affect you.

The Ohio Qualified Income Trust and its Requirements

In order to receive Medicaid benefits for long-term care, an individual’s monthly income must be below the Medicaid income limit set by the state of Ohio.  Starting August 1, 2016, if a Medicaid applicant or recipient’s monthly income exceeds $2,199, the applicant or recipient must set up a Qualified Income Trust (aka a “QIT” or “Miller Trust”) before he or she is eligible for benefits.  For individuals already receiving Medicaid benefits, they must set up their QIT either before August 1 or before their 2017 renewal date.  To be enforceable, the trust must be irrevocable, it must name Ohio as a residual beneficiary, and it must be properly executed.  The trust must also only contain the individual’s income.  It cannot shield assets or contain someone else’s income.

The Trustee of the QIT may use the trust funds to pay certain expenses, such as: the Medicaid recipient’s patient liability to the nursing home, the recipient’s $50/month allowance, incurred medical expenses, bank and Trustee fees, and other limited expenses.  Any funds remaining in the trust upon the individual’s death must be paid to the Ohio Department of Medicaid.

Setting Up a Qualified Income Trust

The Ohio Department of Medicaid has contracted the services of Automated Health Systems to help individuals already receiving Medicaid benefits set up a QIT free of charge.  However, individuals are encouraged to reach out to an elder law attorney if they want more personalized and service-oriented representation.  An elder law attorney can address important issues relating to QITs and Medicaid eligibility.  Such issues might include: who will serve as Trustee, what will happen if a Medicaid applicant lacks capacity to sign a trust, which bank should be used to manage the trust funds, and how an annual trust account is prepared.  An elder law attorney can also assist the family through the confusing Medicaid application process.

Setting up a QIT is just a small piece of the Medicaid eligibility puzzle. When applying for Medicaid benefits, it’s important that everything is done correctly.  If not, you or your loved one could be denied Medicaid benefits and could possibly get evicted from the long-term care facility.  Contact an elder law attorney if you need to plan for the nursing home and Medicaid eligibility.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Prince’s Legacy: Harsh Lessons From Estate Planning Errors

The unexpected death of Prince shocked everyone around the world. To those of us in the financial and estate planning world, it was even more shocking to learn that he seemingly died without an estate plan. Even a month after his death, Prince’s family is still unable to locate evidence that he died with an enforceable Last Will and Testament. As a result of such a major blunder, the fate of his estimated $300 million estate lies in the hands of Minnesota state law. Rich or poor, we can all use Prince’s errors as a harsh lesson in the importance of implementing even the most basic estate plan.
Prince’s Property Rights

Prince was known to have been very controlling of his music. He fought to keep his music off of Youtube and other streaming sites and stood up to his record label when he felt his music was not being treated properly. Those close to Prince also believe he kept a trove of unreleased records at his Paisley Park mansion. Without specific instructions in a Will or Trust, the court-appointed Administrator of his Estate will have the sole authority to decide what happens with his property rights. How the Administrator decides to control his property rights may be inconsistent with what he would have wanted to do.

A Fight for Control

It is likely that several of Prince’s relatives will fight for the Administrator appointment. The Administrator is the person responsible for collecting and valuing the assets, managing how the assets are managed and distributed, and periodically reporting to the court. Having so much power over Prince’s property rights will make the Administrator appointment a very enticing job for one of his family members. As a cherry on top, the Administrator will also be entitled to a large fiduciary fee. Had Prince died with a Will, he would have been able to control who could serve as his Administrator by naming a trustworthy individual to serve in that capacity to honor his wishes. Instead, the appointed Administrator may only have his or her best interests in mind.

No Will Means State Law Determines Beneficiaries

Under Minnesota law (much like other states), if you die without a Will, the state creates a Will for you. It assumes that you want your estate divided equally among your next closest relatives, which in Prince’s case, is to his siblings and half-siblings. If a sibling is deceased, that sibling’s share goes to that sibling’s children. Reports indicate that Prince was very generous to his long-term friends and charities while he was living. It’s likely that he would have wanted some of his fortune to go to those individuals and organizations. Unfortunately for them, they will likely inherit nothing. Instead, his wealth is subject to the claims of relatives with whom he may or may not have wanted to share his estate equally. In Prince’s situation, distant relatives are coming out of the woodwork to make their claims. As recent as last week, an alleged granddaughter of one of Prince’s deceased half-brothers made a claim for her grandfather’s share. This half great-niece is probably a person whom Prince never even knew existed. If the Court determines that the half great-niece is in fact related and is a rightful beneficiary under state law, she will inherit millions. Do you think Prince really wanted unknown distant relatives, such as half great-nieces, inheriting his estate and taking control of his music rights?

The Real Winners

At the end of the day, the real winners in Prince’s death are the US government, the state of Minnesota, and the attorneys. The federal government assesses a 40% estate tax on estates valued over $5.45 million. In addition, Minnesota implements a 16% estate tax rate in its highest tax bracket – likely making Prince’s total estate tax liability 56% of the value of the estate. Attorney fees will also be alarmingly high. A complicated estate such as this one will take years to be resolved and the attorneys involved will be compensated significantly.

In conclusion, a basic estate plan could have prevented the problems Prince created. Even if you never become as wealthy as Prince, you should still have fears of your wishes not being fulfilled, an untrustworthy Administrator getting appointed, distant relatives making claims to your estate, and paying significant estate taxes and attorney fees. Contact an estate planning attorney to review these issues and get peace of mind.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning. He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Online Estate Planning Docs. Can Devastate-Money Can Be A Curse

Reason 2: Ignorance Is Bliss! Don’t be a fool and do your own Generic Online Estate Planning Documents

The second reason in our series on how online estate planning documents can devastate your family and leave them in financial ruin is because online documents are generic and will oftentimes make your plan more complicated and confusing for your family.  If you have ever been in a position where a family member was sick or passed away, you know how much stress the situation can cause your family.  Unfortunately, some people have good intentions of making things easier for their family by using online estate planning documents, but oftentimes that decision just makes matters worse for everyone.  Online document users find it unnecessary to meet with a lawyer because they think that their situation isn’t complicated and that their online Will, Power of Attorney, and health care documents will suffice.  However, online documents are overly generic and usually do not serve the needs of even the most basic family situations.  In Reason 2 of this blog series, I will analyze how generic online documents can make matters worse for your family. More specifically, Part I of Reason 2 will address how customization issues can cause confusion and chaos for your loved ones.

Part I. Online documents don’t allow customization for your family’s unique situation – causing confusion and chaos for your loved ones

In estate planning, one size does not fit all. Over the years, I have found that no two families are alike.  Each family has unique issues and online documents typically cannot address those issues.  If your issues are overlooked or ignored, your estate plan will probably not work the way you intended.  Most online documents lack the proper customization you need to address these overlooked or ignored issues.

  • For example, when you begin the online document process, the software will ask you for basic information such as who you want to serve as your children’s guardian under your Will. After careful consideration, you determine that you want your sister and her husband (your brother-in-law) to serve as co-guardians of your children under your online Will.  After completing and signing your Will, you think your children will be properly cared for if something happens to you.  However, do you want your brother-in-law raising your children if he and your sister get divorced or if your sister passes away?  As a named co-guardian, your brother-in-law can present a strong case to the court that he should raise your children pursuant to the Will.  Although it was your intention for him to raise your children with your sister, the Will does not address what happens upon death or divorce.  An estate planning attorney should be able to recognize this co-guardian issue and could implement the appropriate contingency in your Will that would remove him as guardian upon your sister’s death or divorce.  If you use online documents to name your children’s guardian, you might be unaware of this issue or unable to customize your documents to address that concern.
  • Furthermore, a lack of customization with online documents might cause the inclusion of wrong provisions in your documents. One essential estate planning document is the financial power of attorney (POA).  This document allows your designated agent to make financial decisions for you on your behalf.  A POA usually contains large amounts of standard boilerplate provisions that can be confusing to some people and may not be applicable to your situation.  For example, buried in your online POA might be a provision that allows your agent to make unlimited gifts to anyone.  For some, unlimited gifting might be necessary.  For others, unlimited gifting simply gives your agent a wonderful opportunity to deplete all of your assets.  Unfortunately, elder abuse is very common and it’s usually done by those who are appointed as POA.

Online document providers are not attorneys and do not counsel and recommend what provisions you should have in your documents.  Online providers do provide an option for you to consult with an attorney.  Will that attorney practice near you and be available to meet with you face to face?  Will you be able to select an attorney that has the experience in estate planning that you need?

In conclusion, those who use online estate planning documents might think that estate planning is as simple as filling names into blanks.  In reality, estate planning is complicated and needs to be customized to your specific needs even in the simplest of situations.  Simply filling in blanks can cause chaos for your loved ones down the road.  Online estate planning websites want you to believe that you have peace of mind that your affairs will be in order because ignorance is bliss! It has been often said that every attorney who represent himself or herself is a fool.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

10 Reasons to Use a Trust in Your Estate Plan

While trusts may seem necessary only for the wealthy, there are actually many benefits for creating them, even if you’re a member of the middle class.  Here are the top 10 reasons why you might consider using a trust in your estate plan:

  1. Wasteful spending. Some experts estimate that heirs spend 80% of their inherited money in the first 18 months of receiving their inheritance.  Without a trust in place, your heirs will receive their inheritance outright.  A trust can protect your heirs from quickly depleting their inheritance by spacing out distributions over a certain number of years or for their lifetimes.
  2. Wrong heirs. A trust can keep your estate assets in your blood line and not to your heir’s in-laws or your surviving spouse’s new partner. A trust can delay distributions so that your grandchildren inherit your estate after the death of your children instead of your children’s spouses.
  3. Worthless investments. A trust can protect your loved ones from investing their inheritance in worthless investments that will quickly deplete their inheritance or provide little to no return.
  4. A trust can ensure that assets and IRA/pension plans are used to provide for the surviving spouse for life, rather than being liquidated and spent on a new partner.
  5. A trust can control how assets are allocated among children and step-children upon the death of the surviving spouse. If you have a blended family and have children from a prior marriage, a trust can ensure that all of your children will be taken care of after your surviving spouse passes away.
  6. A trust can maximize federal estate tax savings, if necessary.
  7. A trust can control/hold assets in trust and limit distributions if heirs have alcohol/drug issues. Failure to leave your estate in trust to these individuals means they might stop working or going to school and use their inheritance to fund their lifestyle of drugs and alcohol.
  8. A trust can create asset protection for heirs from their creditors. Failure to leave your estate to your heirs in a trust means that family members own the assets outright and if they are subject to a lawsuit or the claims of their creditors, their inheritance may be lost to their creditors. Inherited IRAs also can get asset protection with a trust.
  9. A trust can avoid probate delays, costs, and burdens for your loved ones. Probate is costly, stressful, and time-consuming.  The only people who benefit from probate are the attorneys.
  10. Lastly, a trust can keep your estate private from the public. Simply implementing a Last Will and Testament will not keep your estate private.

The purpose of establishing a trust is to ultimately help you determine and implement who gets what and when.  When you meet with your estate planning attorney, make your intentions known so that your trust can be tailored to your specific needs.  It becomes extremely important that your trust be properly drafted and funded, so that you can maximize all the benefits a trust has to offer.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

IRAs and The Retirement Beneficiary Trust

Baby Boomers: Protect your Biggest Asset From Creditors and the IRS!

IRAs and the Retirement Beneficiary Trust

I often find that the single largest asset my baby boomer clients have is in the form of an IRA or 401(k).  When that’s the case, I always counsel my clients about the importance of properly listing the beneficiaries on those accounts so that their estate plan operates the way they want it to. Typically, baby boomers name their spouse as the sole beneficiary of their retirement accounts. When the account owner dies, the surviving spouse has favorable tax laws and a lot of flexibility to decide what happens to their inherited IRA, including rolling it into their own.  However, what does a single or widowed person do with their IRA when they die?

Non-Spouse Inherited IRAs: A Lesson in Asset Protection

When your children (or any other non-spouse beneficiaries) are listed as beneficiaries of your retirement account and they inherit it outright, you might be exposing your account to your children’s creditors.  The US Supreme Court recently held that creditors can attach their claims to any non-spouse inherited IRA.  For example, when the beneficiary of an IRA is not the surviving spouse, the Federal Bankruptcy Act does not protect the IRA during bankruptcy if it is in the form of an inherited IRA.  Furthermore, when a child beneficiary goes through a divorce, the divorcing spouse may be able to attach a right to your child’s inherited IRA.  In addition, a person your child injured in a car accident may also be able to attach a right to the inherited IRA.  If you are concerned about exposing your retirement accounts to your children’s creditors, divorcing spouse, or in bankruptcy, it may be in your best interests to name a Retirement Beneficiary Trust as the beneficiary of your largest asset instead of your children individually.

What is a Retirement Beneficiary Trust?

Also known as a Standalone IRA Trust or an IRA Inheritance Trust, a Retirement Beneficiary Trust is an estate planning tool that controls the distribution of your retirement accounts to your loved ones upon your death.  It provides a level of asset protection for your children that they otherwise cannot attain when inheriting your IRA outright.  An added benefit to the Retirement Beneficiary Trust is that the trust can mandate your children to “stretchout” their inherited IRA’s required minimum distributions (RMDs) rather than cash out the IRA completely.  The longer the IRA distributions can be stretched out over a child’s lifetime, the more wealth is transferred to the child over time.  If a child were to cash out the IRA or if they had to use an older beneficiary’s life expectancy, that child would be subject to larger income tax payments and would be given a greater opportunity to recklessly spend the money or poorly invest it.

How does a Retirement Beneficiary Trust Work?  Conduit v. Accumulation Trusts

To properly establish a Retirement Beneficiary Trust, four basic requirements must be met:

  1. The trust must be valid under state law;
  2. The trust must be irrevocable or become irrevocable upon the Grantor’s death;
  3. The beneficiaries must be identifiable from the trust agreement; and
  4. The plan administrator is provided documentation of the trust.

The Retirement Beneficiary Trust will also be one of two types of trusts: a conduit trust or an accumulation trust.

A conduit trust receives the RMDs from the IRA and then distributes those RMDs to the trust beneficiary.  This type of trust does not accumulate and hold excess IRA distributions in trust like an accumulation trust.  As a result, a conduit trust does not provide much asset protection for the trust beneficiary because a creditor can simply attach to the RMDs when they are distributed from the trust to the beneficiaries.  However, the advantage to having a conduit trust is that the beneficiaries are easily identifiable (requirement 3, above). The beneficiaries must be identifiable because the IRS uses this information to determine the RMDs for the inherited IRA using the oldest beneficiary’s life expectancy.  If an older beneficiary’s life expectancy is used, the stretchout will not be maximized to its fullest potential.  A conduit trust easily prevents this situation because it is not holding assets in trust and does not have unintended contingent beneficiaries.

On the other hand, an accumulation trust allows IRA distributions to be accumulated in the trust and distributed to the beneficiaries under the terms of the trust. This allows greater asset protection; however, under an accumulation trust, the IRS will consider the life expectancies of all remainder and contingent beneficiaries when determining the RMD amounts for the inherited IRA.  For example, if there is some unintentional contingent beneficiary who is 85-years-old, that person’s life expectancy will be used for income tax purposes and it will minimize the stretchout for the intended younger trust beneficiaries.  Accumulation trusts can be more complicated than conduit trusts because the drafting attorney must consider every contingency in the trust to prevent the IRS from identifying older contingent beneficiaries.

Drafting Retirement Beneficiary Trusts, especially accumulation trusts, requires advanced tax law knowledge.  If you have concerns with asset protection and whether or not your children will maximize their stretch IRA, a Retirement Beneficiary Trust might be right for you.  Meet with your attorney, CPA, and financial advisor to learn more about Retirement Beneficiary Trusts.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Top 3. Estate Planning Docs. Can Devastate-Pt. 4

The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I, Part II, and Part III of this series addressed the concerns you might have if the wrong heirs inherited your estate, concerns you might have with wasteful spending and worthless investments, and concerns with outliving your money.  This blog, which addresses the last part of Reason 1, will present an unfortunate, but all too common case study on how do-it-yourself documents can ruin your estate plan.

Part IV.  Don’t get false peace of mind! A case study on how do-it-yourself documents can ruin your estate plan!

Kim’s Financial Situation

Kim is a resident of Ohio.  She is 72 years old, widowed, retired, and has two independent adult children.  Her estate consists of two main assets: a large retirement account and a $75,000 checking account.  When Kim set up her retirement account many years ago, she listed her husband as the beneficiary but never updated it when he passed away.  She also added her son as a joint owner on her checking account to help pay her bills.

Kim’s Plan

Like most people from Kim’s generation, Kim does not like talking about end of life planning with her children and thinks lawyers are a waste of money.  She decides to use a popular do-it-yourself legal website to set up her estate plan.  Kim recently heard a statistic that 80% of lottery winners go broke within 18 months.  She wants to limit the amount her two children inherit to annual payments over ten years to avoid wasteful spending and bad investments.  She also knows that she wants her children to inherit everything equally and she wants to avoid probate to save money and keep her finances private.

Kim’s Online Documents

Kim decides to implement a Trust in her estate plan because a Trust will satisfy all of those concerns.  Her Trust ultimately provides that her two children shall receive equal distributions of her Trust assets in annual installments for ten years.  The website also suggests that Kim needs to implement a Last Will and Testament.  She executes a Will and Trust which simply lists her two children as equal beneficiaries.  Kim feels confident that her “basic” website documents were done properly and can’t understand why anyone would spend the money to consult with a lawyer.  She puts her executed documents in a desk drawer and never thinks about them again.

What Happened When Kim Died

A few years later, Kim passes away.  Her deceased husband is still listed as the primary beneficiary of her retirement account and no contingent beneficiary is listed.  Her son is also still a joint owner on her checking account.  While cleaning out Kim’s house, her children discover Kim’s Will and Trust.  They consult with an estate planning attorney to find out how they need to proceed.  The attorney tells the two children that the Will and Trust are valid.  He further explains that any assets titled in the name of the Trust would have passed equally to the two children over ten years pursuant to the terms of the Trust.

The attorney indicates that Kim’s Will governs all probate assets which are owned in Kim’s name individually.  Such assets will have to pass through probate and will be distributed to the two children outright, pursuant to the terms in the Will.

After reviewing Kim’s assets, the attorney determines that the retirement account will pass to the children outright under the Will through probate because the account has no living designated beneficiary.  He also concludes that the checking account will not pass under Kim’s Will through probate at all, but will rather pass to the joint-owner child individually.  The attorney confirms that the Trust does not hold or will not hold any of her assets and it will not govern how her estate is to be administered.

Kim’s Estate Plan Flaws

In this example, Kim tried to accomplish her estate planning goals to make things easier for her family, but she ultimately failed to properly memorialize her wishes in several different ways:

  • She does not avoid probate. By failing to remove her deceased husband and failing to add her Trust as beneficiary of her retirement account, her estate becomes the beneficiary of the account, resulting in probate. When an estate is probated, it becomes public record.
  • Failing to review and update her retirement account beneficiaries resulted in her children inheriting her retirement account outright rather than in Trust over ten years. If Kim had named the Trust as the beneficiary of her retirement account (no probate) or named the Trust as the sole heir under her Will, her retirement account would have been owned by her Trust rather than by her children outright.
  • Her children will not inherit her estate equally. Kim added her son to her checking account for convenience purposes but failed to provide that the account would be payable on death to her children equally.  What seemed like a simple means of convenience for Kim ended up with a $37,500 inequality for her one child who inherited none of the checking account.
  • Kim wasted money using online documents. She tried to save money using online documents, but she ultimately paid for a Trust that was never used and her estate plan failed because none of her goals were accomplished.

In conclusion, Kim got a false sense of peace of mind by preparing her own documents.  If she had met with an estate planning attorney, she would have received invaluable advice on how to avoid probate and make sure that her estate plan was set up properly.  Her attorney would have also identified the estate flaws detailed above.  Unfortunately, Kim’s example is all too common in the estate planning world.  What should have been a fairly simple estate plan turned out to be something completely different than what she wanted.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Amy E. Pennekamp-Ohio Super Lawyers Rising Star 2016

William E. Hesch Law Firm, LLC is pleased to announce that attorney Amy E. Pennekamp has been named a 2016 Ohio Super Lawyers® Rising Star.  Attorneys are chosen through the independent research of the publishers at Super Lawyers®, a Thomson Reuters business.

Rising Stars are age 40 or younger or have been practicing law for 10 years or less, and represent the top up-and-coming attorneys in the state. Less than 2.5 percent of lawyers are selected for Rising Star status. Super Lawyers®, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.

Learn more about Amy and find her contact information, here.